In a historic move, Engine No.1, an activist investor group, won two seats on Exxon Mobil’s (NYSE: XOM) board. Considering a paradigm shift at other major oil companies including, BP (NYSE: BP) and Royal Dutch Shell toward the renewable energy business, Exxon’s focus on oil has been a concern for investors. Notably, the company projects its operating cash flow to increase from $30 billion in 2021 to around $35 billion in 2025, assisted by new upstream investments and recovering benchmark prices. Interestingly, the company is focused on atmospheric carbon capture instead of expanding its renewable energy portfolio. While investor returns from conventional oil and renewables depend on government policies and market factors, Trefis highlights the key differences in the long-term strategy of Exxon Mobil and BP in this article. Our interactive dashboard, Buy Or Fear Exxon Mobil Stock, depicts historical stock price, revenues, and earnings of Exxon Mobil.
Oil business to drive Exxon Mobil’s earnings in the coming years
Per XOM’s investor presentation, the company’s long-term capital allocation priorities include investments in conventional oil & gas, maintaining a strong balance sheet, and sustaining dividends. Moreover, structural cost efficiencies are likely to assist earnings expansion over the coming years. The company’s new upstream investments, which provide returns of more than 10% at $40/bbl Brent, are projected to contribute 40% of production volumes and operating cash by 2025. Thus, the company remains committed to its conventional oil & gas business in growing long-term shareholder value.
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The new energy business is a key focus for BP
After slashing production last year, BP released a new strategic direction of expanding its low carbon energy, electrification, and mobility businesses. As benchmark prices remained low from depressed demand, the company shifted its long-term focus from conventional oil & gas to new energy. Notably, the company has also changed its reporting structure to highlight the Gas & Low Carbon Energy segment’s impact on finances. The low carbon energy business and future mobility solutions are likely to attract 50% of BP’s capital expenses and generate high profitability by 2025. Moreover, the company has been divesting oil & gas assets to de-leverage the balance sheet and repurchase common stock.
Are there other better alternatives apart from BP? Check out Exxon Mobil Stock Comparison With Peers to see how XOM compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.